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Stillman Consulting Services v. Greene

United States District Court, D. Utah

January 13, 2020

STILLMAN CONSULTING SERVICES, LLC, in its capacity as Special Deputy Liquidator for Arches Mutual Insurance Company in Liquidation, Plaintiff,
v.
SHAUN GREENE, LINN BAKER, JOHN E. BRAUN, DOUGLAS R. SMITH, NATHAN JOHNS, JON WUNDERLI, FERRIS TAYLOR, DENNIS KUNIMURA, JOHN STOHL, ALAN THURGOOD, MARK TUTTLE, and JOHN DOES 1-10, Defendants.

          MEMORANDUM DECISION AND ORDER REMANDING CASE

          DALE A. KIMBALL UNITED STATES DISTRICT JUDGE

         This matter is before the court on Plaintiff Stillman Consulting Services, LLC's Motion to Remand. Because the court concludes that oral argument would not significantly aid in its determination of the motion, the court issues the following Memorandum Decision and Order based on the memoranda submitted by the parties and the law and facts relevant to the motion.

         BACKGROUND

         Plaintiff Stillman Consulting Services, LLC (“Stillman”) is the court-appointed liquidator in the liquidation of Arches Mutual Insurance Company (“Arches”). Arches was a Consumer Oriented and Operated Plan (“CO-OP”), created and approved under the Patient Protection and Affordable Care Act (“ACA”), with the purpose of offering private health insurance to individuals and small groups seeking insurance through a federal virtual marketplace. Defendants were executives of Arches.

         Stillman filed the instant suit in the Third Judicial District Court for the State of Utah (the “Liquidation Court”) in August 2019, wherein it alleged five causes of action, all of which arise under state law: (1) breach of fiduciary duty under Utah Code Ann. § 16-6a-822; (2) negligence; (3) corporate waste; (4) errors and omissions; and (5) recovery of value received by affiliates under Utah Code Ann. § 31A-27a-502. The following month, Defendants removed the case to this court asserting that each of the preceding claims actually arise under federal law and, as such, this court has original jurisdiction over this action.

         DISCUSSION

         Stillman now moves to have this case remanded back to the Liquidation Court alleging that this court lacks jurisdiction over this case. “Federal courts are ‘courts of limited jurisdiction,' possessing ‘only that power authorized by Constitution and statute.'” Devon Energy Prod. Co., L.P. v. Mosaic Potash Carlsbad, Inc., 693 F.3d 1195, 1201 (10th Cir. 2012) (quoting Exxon Mobil Corp. v. Allapattah Servs., Inc., 545 U.S. 546, 552 (2005)). Federal courts are to “presume[] that a cause lies outside this limited jurisdiction, and the burden of establishing the contrary rests upon the party asserting jurisdiction.” Id. (quoting Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994)); see also Marcus v. Kansas Dep't of Revenue, 170 F.3d 1305, 1309 (10th Cir. 1999) (“Because the jurisdiction of federal courts is limited, there is a presumption against our jurisdiction, and the party invoking federal jurisdiction bears the burden of proof.” (quotation marks omitted)).

         Removal is proper in “any civil action brought in a State court of which the district courts of the United States have original jurisdiction.” 28 U.S.C. § 1441(a). A federal court has original jurisdiction when the civil action “aris[es] under the Constitution, laws, or treaties of the United States.” 28 U.S.C. § 1331. In determining whether a complaint arises under federal law and therefore confers federal question jurisdiction, “courts are ‘guided generally by the ‘well-pleaded complaint' rule, under which a suit arises under federal law only when the plaintiff's statement of his own cause of action shows that it is based on federal law.” Salzer v. SSM Health Care of Oklahoma Inc., 762 F.3d 1130, 1134 (10th Cir. 2014) (quoting Turgeau v. Admin. Rev. Bd., 446 F.3d 1052, 1060 (10th Cir. 2006)). Thus, the plaintiff in a case “may prevent removal to federal court by choosing not to plead a federal claim even if one is available.” Id. (quoting Turgeau, 446 F.3d at 1060). Moreover, there are two situations in which a case arises under federal law: when the plaintiff's complaint establishes (1) “that federal law creates the cause of action, ” or (2) “that the plaintiff's right to relief necessarily depends on resolution of a substantial question of federal law.” Gilmore v. Weatherford, 694 F.3d 1160, 1170 (10th Cir. 2012) (emphasis added) (quoting Empire Healthchoice Assurance, Inc. v. McVeigh, 547 U.S. 677, 690 (2006)). In this case, Defendants concede that the first situation does not apply given that federal law does not create any of the causes of action that Stillman asserts. Accordingly, Defendants must rely on the second situation.

         The “‘substantial question' branch of federal question jurisdiction is exceedingly narrow-a ‘special and small category' of cases.” Id. (quoting Empire, 547 U.S. at 699). Indeed, the Supreme Court has articulated that the “mere need to apply federal law in a state-law claim” will not “suffice to open the ‘arising under' door.” Grable & Sons Metal Prod., Inc. v. Darue Eng'g & Mfg., 545 U.S. 308, 313 (2005). Furthermore, federal question jurisdiction cannot “depend solely on ‘a federal defense, . . . even if the defense is anticipated in the plaintiff's complaint, and even if both parties concede that the federal defense is the only question truly at issue.'” Becker v. Ute Indian Tribe of the Uintah & Ouray Reservation, 770 F.3d 944, 947 (10th Cir. 2014) (quoting Caterpillar Inc. v. Williams, 482 U.S. 386, 393 (1987)). Rather, for a state law claim to be subject to federal jurisdiction, there must be a federal issue that is “(1) necessarily raised, (2) actually disputed, (3) substantial, and (4) capable of resolution in federal court without disrupting the federal-state balance approved by Congress.” Gunn v. Minton, 568 U.S. 251, 258 (2013) (emphasis added). Because the court concludes that Defendants have failed to establish that this case involves a federal issue that is necessarily raised and substantial, the court will limit its analysis to those two factors.

         A. “Necessarily Raised” Factor

         “To determine whether an issue is ‘necessarily' raised, the Supreme Court has focused on whether the issue is an ‘essential element' of a plaintiff's claim.” Gilmore, 694 F.3d at 1173 (quoting Grable, 545 U.S. at 315). Here, Stillman argues, and the court agrees, that it is unclear which federal issue Defendants believe to be an essential element of any of Stillman's claims. Indeed, in their opposition to Stillman's motion, Defendants fail to address this point. Instead, Defendants argue for a different standard-that a plaintiff's complaint raises a federal issue when the court will necessarily apply a federal law or regulation to the plaintiff's claim. In support of this assertion, Defendants cite to language in Gunn which discussed how aspects of the plaintiff's claims in that case would “necessarily require application of [federal] law.” 568 U.S. at 259. Accordingly, Defendants contend that there are at least two specific facts from Stillman's complaint that require the application of federal laws and regulations: (1) Arches' status as a CO-OP and (2) loans that Arches received from the Centers for Medicare and Medicaid Services (“CMS”) pursuant to a loan agreement (the “Loan Agreement”).

         Defendants contend that Arches' status as a CO-OP requires the application of federal laws and regulations because the federal government placed several requirements and restrictions on CO-OPs, including corporate governance, who they could insure, and what they could do with profits. They aver that Stillman's complaint necessarily implicates federal issues because the duties allegedly owed by Defendants to Arches gather their substance and form from federal laws and regulations. Conversely, Stillman argues that Arches' status as a CO-OP is not remotely at issue in this case. Likewise, that the federal government placed several requirements and restrictions on CO-OPs is entirely irrelevant, Stillman contends, because there are no allegations in the Complaint that invoke any such issues. Moreover, Stillman avers that every duty that it asserts against Defendants are exclusively state statutory and common law fiduciary duties.

         Next, Defendants contend that the loans that Arches received from CMS pursuant to the Loan Agreement necessarily require the resolution of federal laws and regulations. Specifically, Defendants argue that the loans were both from and administered by CMS under the Loan Agreement, and the Loan Agreement explicitly includes various federal laws, such as the ACA, and regulations in its terms. Thus, because Stillman alleges that Defendants did not comply with the Loan Agreement, the Complaint necessarily implicates the federal laws and regulations enumerated in its terms. Put differently, in order to resolve Stillman's claims and ascertain whether Defendants breached their fiduciary duties, a court will be required to determine whether Defendants complied with the ACA and its accompanying regulations. In response, Stillman avers that the federal laws and regulations that are in the Loan Agreement are entirely inapplicable to the parties and completely irrelevant to the claims raised in the Complaint. Therefore, although the Loan Agreement references various federal statutes, a court would not be required to construe them in connection with Stillman's claims.

         In light of the parties' arguments, the court concludes that a federal issue is not necessarily raised in the Complaint so as to confer federal jurisdiction in this case. First, the court agrees with Stillman that Arches' status as a CO-OP is not at issue in this case. Nowhere in the Complaint does Stillman allege that Arches was not a CO-OP. Nor are there any allegations that would require a court to analyze the requirements and restrictions imposed on CO-OPs by the federal government. That Arches, as a CO-OP, was regulated in part by federal law appears to be irrelevant when considering the claims asserted by Stillman. Second, neither the loans that Arches received nor the Loan Agreement itself require the construction or application of federal laws and regulations. Simply because Arches received loans from the federal government does not mean that federal issues are necessarily raised in this case. Similarly, even though the Loan Agreement references various statutes and regulations, the resolution of Stillman's claims neither depends on nor requires the application of such statutes and regulations. Therefore, ...


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